Educating American voters about Herman Cain on the Issues.

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999 Calculator

One of the most common questions I see in the Herman Cain Facebook page or in online forums is, “How do I calculate how 9-9-9 will impact me?”

Now, you can know for sure. Download the 9-9-9 Personal Tax Calculator that I built. Either open it in Microsoft Excel, or create a free account in Google Docs to upload the form and use it there (for those of you who don’t own the software and don’t want to buy it).

Here are the highlights of Cain’s 999 Plan:

Eliminate personal and employer payroll taxes (FICA)

Eliminate the capital gains tax

Eliminate the death tax

Eliminate double taxation on dividends

Reduce the federal income on all Americans to only 9%

Implement a 9% national sales tax

Many people make the false assumption that a 9% income tax and new 9% national sales tax will make their effective tax rate 18%. But, this is far from the truth when you dive into the numbers, remove the taxes that 999 will remove, and then simplify the tax code. This becomes clear when you test your own numbers in the calculator.

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30 thoughts on “999 Calculator”

Do a little more homework. I’m an ole accountant and my wife and I are drawing social security which is NOT taxable up to the $14160 each. Eliminate FICA? Too vague. Federal Income at 9%? FICA is now at 15.13%(both sides) Come on, trying to be on your side. Put $14160 times two as “earnings for two filing joint” which should be exempt. in your calculator.

First, I did not build in Social Security, because most SS recipients I have talked to know their income is non-taxed, so I wasn’t building the calculator for them. I figured they could just look at the impact on the 999 tabulation. However, I can certainly do so. I’ll put that on my to-do list and try to post an updated version soon.

Regarding FICA, I used only the personal FICA (7.65%), not the personal plus business, because I wanted to show a true representation on the person’s or couple’s income. And I used the 7.65% rather than the 2011 rate of 5.65% because it is scheduled to go back up next year.

I know Cain continues to use the 15.3% FICA number when he makes speeches, because he is assuming businesses will pass their 7.65% to the individual. But, I prefer to make a safer estimate of resulting income.

I derive a large portion of my income from rental income, which because of the deductability of mortgage interest and other expenses dramatically reduces my tax exposure. According to this I should be paying $67,000 a year in taxes, but I actually only paid ~$14,000 because so much of my income isn’t taxed.

Thanks for the feedback. To accomplish what you are asking, I would have to write full tax software to allow full itemization and calculations over thousands of lines of tax code, which clearly isn’t possible. It is intended to cover the broadest common cross-section of individuals to calculate standard job income and use the standard tax deduction rate under the current tax code.

Amazing though that it’s so much easier to calculate tax under 999. That can be done with a single, simple formula. 🙂

sorry nyboe , loop holes will be closed, i assume your rental income will be taxed at the 9% rate, like the other businesses…. If you do in fact owe this much more we will be glad for you to start pulling your share of the weight 🙂

10smith, keep it civil, nyboe was simply asking to be able to calculate an accurate variance to what he’s paying under the current code. This calculator doesn’t allow for calculating rental income because it’s not common with the majority of the population, and I endeavored to keep the calculator simple to use for the general public. No biggie. He has a valid question.

nyboe, it sounds like your mortgage interest would still reduce your tax liability for your rental income, even under the 999 plan. People seem to be assuming that there will not be deductions under the 999 plan, but that cannot be true. Businesses will still need to deduct expenses against revenue to determine profit, which is what the 9% tax would be based upon. If the 999 plan is taxing on the gross, it will never work because many business make far less than a 9% margin on gross revenues.

That would be true of individuals as well because if you receive some form of income, but you incur expenses to get that income, you would be taxed on the profit. For example: you buy something and sell it to someone else for a profit…you are taxed on the difference between the purchase and selling price under the 999 plan, right? Otherwise it cannot work.

The idea of throwing out the entire tax code is intriguing, but when you stop and think about it, you cannot get away from basic rules that determine what is considered profit. I seriously doubt that Hermon Cain wants taxes to be based on gross revenues considering he is supposed to be an advocate of businesses.

I like Cain and I like the idea of simplifying the tax code dramatically, but I have a lot of questions about what that would really mean when it comes to actual implementation.

Corban, I understand your cynicism regarding the cost of goods coming down the full variance once the imbedded taxes are removed. Unless any of us are psychic, there’s no way to know what the effectual outcome will be. However, free market principles would indicate that if even a few competitors in a particular industry choose to compete based upon price, then other prices in the same sector will also be driven down by comparison to be competitive. As a simple comparison, think of how the price of various electronics have come down as other companies found economies of scale to be able to sell them at a cheaper rate.

Unfortunately, certain industries are more price elastic than others. You may see a decline in costs on things such as cars, electronics, etc. Food is less elastic. So, I am a cynic that we would see much of a reduction in prices there. However, there are a litany of other regulatory measures that make food inflationary to begin with (e.g. corn subsidies for ethanol production, which made corn more expensive, and corn is in nearly everything purchased at the store in one way or another). So, there are other opportunities to bring down the cost of food.

The key with 999 is empowering people to understand where the taxes exist so that they can make better informed decisions. For example, purchasing used goods rather than new goods to reduce your own tax burden. All it takes is a basic understanding of television, mobile phone, and car penetration in America to realize that people across all sectors (including those below the “poverty” line) have an opportunity to make wise purchases outside of the basic necessities.

To those who are low income, realistically they will see an increase in “tax burden” that would be offset by reducing costs of goods. This is a hard argument to win though, because the average American doesn’t understand basic economic principles of supply, demand, and competition.

1) Given that many companies that produce our goods don’t pay US corporate taxes, how could we expect any reduction in price? It might bring some manufacturing back, but even a 22% reduction will not allow Americans to compete with $1/hr foreign workers.
2) Plugging numbers into the calculator, it appears that anyone making $35k per year or more will see a decrease under almost any scenario. The 999 plan claims to be revenue neutral, so how exactly do 40% of the population (those making $35k or less), representing only 10% of all U.S. income, balance this windfall for those upper 60%? If you run your calculator against the median income in each quartile, I think you will find that the numbers do not balance … not even close.

First, 999 makes the US a far more competitive and attractive place for business. At a 9% business tax rate, that is less than half of the business tax rate of ANY other major industrialized nation. The majority of other countries are 20-35%. In particular, consider China, where the corporate tax rate is 25%.

Second, you have to consider imports and exports. By charging sales tax at the point of retail in the US, it reduces costs for companies exporting from the US to other companies. There’s a full analysis of this in the aforementioned link.

You are correct in your assessment of people making lower than $35,000 paying more in taxes. There-in lies the reason for people to understand the impact of 999 on the overall economy and the effect on prices. People keep arguing that it will cost people more because “how do you expect people to buy used food?” This is a hollow argument in the sense that food only accounts for 17% of the average household’s discretionary spending. That leaves the other 83% in play for the taxpayer to decide the wisest use.

Lastly, regarding revenue neutrality…
Yes, it does reduce the “income tax” liability of the top 1% (who will likely continue they love of new stuff and pay 9% on everything they spend).
And yes, it does increase the tax liability of the 43% who currently pay ZERO taxes (which I realize a lot of people will not like). But, I personally think that everyone who benefits from our country and economy should have at least some financial investment in how government operates.
But, the bigger picture is that the aim of 999 is repatriation of money and manufacturing from overseas. Despite Bachmann’s claim that 999 is not a “jobs bill,” she is plainly ignorant. If you bring manufacturing back to the US by lowering the tax rate, you 1) add new jobs and 2) add to the number of people with higher income tax contributions (still at the 9%) and more discretionary income to spend, thus increasing sales tax revenues. These are calculations and considerations in the background analysis for the plan.

Not included in the calculations, despite the significant ramifications:
In actuality, 999 would increase revenue. The independent firm doing the analysis did not include the impact of black market and illegal tax revenues (because the scientific metrics do not exist). Currently, if someone works the black market, doesn’t declare revenue, etc., they don’t pay income tax, and therefore pay no federal tax. Additionally, cash-earning illegals don’t declare income tax. Under 999, these segments of the population would be forced to at least pay 9% on new goods…thereby expanding the tax base.

With all of these considerations, it is understandable why the candidate best able to play “rhetoric” or communicate their message in a simple way will win at the debate stage. How on earth would someone attempt to explain everything that I just covered to the average American who doesn’t even understand how to calculate 999 for their own finances? (Thus the reason for my free calculator.)

But, above all else, my biggest annoyance with the GOP candidates last night was their assertion that 999 included a VAT…even Bachmann who purports to be a tax attorney. They were flat-out incorrect. There are a number of substantive ways to argue against 999, namely the impact of lower-wage-earners, or perhaps the “distrust” of federal government eventually leading to a VAT. But, arguing falsehoods? Any ounce of dignity that some of those other candidates had was tossed out when they tried to jump on that me-too statement.

Thank you for your very thoughtful response. I understand the desire for a simpler tax system, but do we really think that the problem with the country’s economy is that the poorest 40% do not pay enough taxes? I do bristle at comments like “… 43% who currently pay ZERO taxes”. This is an untrue statement as written. Those 43% pay state sales taxes, gas taxes, cigarette taxes and federal payroll taxes to name a few. I understand that you are only referring to federal income taxes, but that is not what is being suggested and you know that. The suggestion is that the bottom 43% are leeches on society. Taxable contributions to society do not begin and end with the federal income tax.

Make no mistake, payroll taxes are a federal tax just as surely as the income tax. Those taxes flow into the general fund and are spent (overspent) just the same. There is no “lock box” for these funds. Prior to the reduction this year to 4.2%, the poorest 43% you allude to were paying 6.2% on every dollar they made. No deductions, no refunds. Contrast this to someone making $1,000,000 who effectively pays about 0.63% of their income in payroll taxes.

Overall I would agree that the federal system of taxation (income & payroll) is still progressive. However, when one accounts for the regressive nature of state and local taxes, poorer people pay much more than you might think. Here is the breakdown by quintile:

I understand this is from an organization with a liberal bent, but do you have figures from another source that refute them?

As to the rich buying more new goods. This is true in absolute dollars, but not in percentage terms. Those lower on the economic ladder spend ALL of their disposable income; ALL of which will be subject to the new 9% tax. Those in the upper brackets save and invest a larger portion of their income. Investments which would now be taxed at 0%. Given that real, inflation-adjusted wages have been stagnant for 30 years, is this really the answer?

First, let’s make sure we’re talking about the same thing. The problem with the GOP debate last night was that they were trying to piggyback state taxes onto the 999 plan…something that you also are attempting to do. This is erroneous, because the President has no control over state taxes. So, we have to be sure we’re comparing apples to apples…which means we need to limit our discussion to federal taxes.

What we need to understand is that the top tax bracket, as it is, is already at 35%. The problem is not the rate itself. The problem is the decision makers (legislators) who bury “cheats” in the endless lines of tax code. The “loopholes” are there by design in most circumstances. How do you eliminate this problem? By simplifying the tax code so that there are no secrets.

But, at the end of it all, I can see where we will disagree (which we are entitled to 🙂 ). I want the system to be fair in the sense that everyone pays taxes, otherwise I (as a person in the 53%) am subsidizing those who don’t pay federal taxes. But, I want to create more jobs so that the people at the bottom have opportunity to climb to the middle, upper, etc., and therefore help disperse the tax burden.

Your concept of fairness seems to be that everyone should pay the same percentage of income. This would essentially be a Flat Tax (for which Paul Ryan is a proponent). I could easily get on board with that idea as well. You would still have to eliminate the existing tax code. And, based upon the same background research supporting Cain’s 999 plan, a straight Flat Tax would mean that everyone in American is essentially paying 23% of their income to be revenue Neutral. If 1) we’re trying to be fair, and 2) your numbers hold up, then 3) the Lowest 20% get the shaft because their tax burden actually goes up significantly.

From that standpoint, the biggest pro of Cain’s plan is that a Fair Tax (national sales tax) or a hybrid that includes that as a component (e.g. 999) seeks to disperse the tax burden upon the hidden leeches in the system who don’t pay taxes (black market, undeclared income, illegals paid cash for work, etc.) thus helping the broader populace of the US.

Much love for you, friend. When I made that last revision to incorporate the request for social security calculations, I neglected to include one cell in the revised algorithm. I updated the file for you to download.

Thank you for doing this and for all of your explanations. I am growing weary of those who haven’t read the plan and haven’t done their own math, arguing points out of ignorance. But, if someone doesn’t have basic knowledge of taxes, they are just listening to the rhetoric spewing from those who are fighting Cain for this position. I know that to get so far as the candidates have, they have a certain level of intelligence. So that tells me that they have read the plan and know it would work…they are just throwing out phrases that they know will play on the fears of those who don’t intend to educate themselves…all because they want to WIN. It’s that simple. Apparently, these last few years haven’t been enough to awaken some people.

My pleasure. I think there are genuine concerns from individuals who make less money and run 999 to see their tax liability go up (especially those who are on social security). Unfortunately, it is a much more difficult battle to try and communicate that there are other numbers to consider aside from their straight dollar-for-dollar tax liability (e.g. cost of goods, repatriation of jobs, etc.). Cain’s plan accounts for another thing that many senior citizens don’t necessarily think about…under 999, capital gains tax goes away. So, if you have invested money during your career and use it to live after retirement, you may ZERO taxes on that money when you take it out. That’s a key part of the plan that people need to read up on. Scare tactics are an unfortunate reality in politics…and all parties employ them to some extent. 😦

I understand what you mean. Wise to be cautious. I would’ve programmed it as an online calculator, but it’s a bit trickier to write web programming rather than simply putting an algorithm into an excel spreadsheet. 🙂

It appears that I cannot reply to your last statement (Is there a limit on nested replies or did you turn the reply off for that post?). No where in my post do I attempt to refute that the bottom 40% pay almost zero federal INCOME taxes. You provided no evidence that when looking at all taxes (federal income, federal payroll, state sales, etc.), that the poor do not pay a significant portion of their income in taxes. You know full well how “43% pay ZERO taxes” is interpreted and I was attempting to clarify the truth of the matter. You also do not address the payroll tax currently paid by everyone, which is very regressive. The tax discussion should never be isolated to one or the other. They may have different names, but they go in the same, over-utilized bucket. Whether they should is another matter.

To suggest that the federal government should not take state and local taxes into consideration when setting tax policy is based on what logic? Should it operate with blinders and pretend the states don’t exist? It is the United States, not the Separate States plus Federal Appendage. Federal policy at all levels should have a symbiotic relationship with state and local laws/policies.

No where in my post do I suggest that a flat tax is fair. In fact, we need to go back to the more progressive system in place under Reagan (or even before). You remember him, right? We were promised that the wealth would “trickle down”. This plan is no different, give tax cuts to the rich now for some illusory benefit down the road. Actually, this one is worse because it asks the poor to immediately pay for the rich’s tax cut.

Let me tell you a little secret … the rich will do just fine regardless of whether they are paying 9% or 90%. The system is designed to concentrate wealth and it is extraordinarily efficient. What is distressing is that the 1% or whatever you want to call them do not seem to realize that their fate is wrapped up with the rest of the 99%. “Class warfare … jealousy” you say? It is the 1% that declared war over 30 years ago.

At one time, in the period between the end of WWII and the mid-1970s, we had a balance which allowed all to prosper. Government provided infrastructure, research and education. Corporations provided the means of production and jobs. Unions and the people that belonged to them provided the labor and a market for the goods produced. The middle class prospered, but so did the corporations. But unfortunately, one of the players (Corporations) decided that their share of the pie wasn’t big enough. This lead to the mass outsourcing of jobs to low-wage countries without labor or environmental rules. These same corporations expected their former employees to continue to consume, which they did by increasing the average number of jobs per household (second jobs, women entering the workforce), buying cheap crap from China, riding the housing bubble and taking on ever-increasing amounts of debt. It just wasn’t workers that the corporations went after either. Instead of being a partner, government was the “problem”. A string of politicians convinced us that the government could do nothing right and we elected them in some sort of self-fulfilling prophecy. Well, the jig is up and the game is over. The three legs of the stool has been beaten, gnawed and hacked so that only one is left whole. A one-legged stool does not stand for long.

“History does not repeat itself, but it does rhyme.” – Mark Twain

We have been here before. The late 1920s had income inequality that we are only recently starting to rival. Wild speculation, financial bubbles, bashing the poor as lazy … all eerily familiar. 999 will only accelerate the process, resulting in a much quicker collapse.

I agree we are each allowed our own opinions and I appreciate that you are allowing for alternative viewpoints to be expressed. In the end, we are in this together and we all have to live with the path that is chosen at this crucial juncture in our nation’s history.

I assume the limitation of posting is some sort of WordPress setting, because I didn’t change any settings.

Since your remarks are so broad-reaching, and since it’s evident we aren’t going to see eye to eye, I am not going to address each element point by point.

Rather, I will emphasize the single most attractive element in Cain’s plan–transparency–knowing your personal tax liability from the outset–and knowing that someone can’t game the system simply because they can afford a tax attorney.

There are a number of plans I can get behind. Cain’s isn’t the ONLY option. But, he is the only one to even approach a bold solution to the existing bureaucratic nightmare.

I believe in free market principles. You appear to believe them to a lesser extent. I’m leaving your remarks because I believe the voting public needs to research the issues and perspectives for themselves.

When you factor in the earned income credit those 43% pay no taxes because while the payroll tax is taken out of their check and they pay state taxes and such they get a return for thousands more than was taken out of their check.

Great tool. Trying to embed your calculator in a permanent doc (on Facebook) for volunteers to reference. Having trouble. When I copy and paste this, obviously, the hyperlink doesn’t translate. Would you mind working with me? Maybe easiest to contact me at my personal email. This is so good, THANK YOU so much!

I understand you don’t want to write thousands of lines of code, but considering how many small business owners / self-employed people are out there (AND ARE THE MORE LIKELY SUPPORTERS OF CAIN, presuming they aren’t being screwed by 999), plus many people even with traditional payday jobs also earn secondary income from freelance work, may I humbly suggest you PROMPTLY adapt this to sole proprietors / small business owners.

Additionally, you need to add explanations in the spreadsheet, i.e., what qualifies as New goods” in “% of income I plan to spend on NEW goods”

Many of us are obviously looking to support Cain not just for his goals of tax revision but also for his general conservative values. But those of us in the middle class who do pay taxes now but aren’t living the high-life are not interested in raising our taxes just because drug dealers will pay sales tax while millionaires will get huge breaks from 999 with some mystical promise they will spend more.

I appreciate your thoughts. But, there’s not an effective way to accomplish everything you are asking without literally writing a small version of tax software. Many of the items you mentioned are deductions if you itemize, but itemized deductions aren’t dollar-for-dollar…so, if you want to write tax software, have at it. I’ll be happy to link to you when it’s done.